This was excerpted from a 14 February Wall Street Journalarticle. Back in December 2010, a Bloomberg article, quoting a Morgan Stanley Asian currency strategist, noted that Vietnam’s dong is in “extreme trouble,” citing a weak economy, trade deficit and “deteriorating balance of payments.” This is the third currency devaluation in a year and a half.

A colleague on a Vietnam Studies listserv, of which I’m a member, had this to say about the latest currency devaluation:

The lesson from Thailand in 1993-97 is that even when GDP growth seems very robust, you can only go on borrowing from foreigners in order to speculate on property, stocks and other nontradables (rather than making investments that create actual jobs, raise real productivity, and earn/save foreign exchange) for a limited time. The CPV line on devaluation, as cited in the Bloomberg article, is that “One of our top priorities now is to stabilize the macro economy in order to maintain the pace of growth.” But with inflation now firmly in double digits and interest rates over 20%, stabilization will require substantially slower growth, at least for a time. Problem is, to stabilize means reining in the SOEs and provincial governments, the agencies responsible for much of the foreign borrowing/speculative investment. The longer the Party accommodates their activities, the more it risks a real financial crash. Can the Party remove its own punchbowl?

The specter of a “real financial crash” haunts many here. How long will the party (no pun intended) last? When will the bubble(s) burst, or will they? When will sustainable growth/development become policy and practice? (“Sustainability” defined as “Growth that does not negatively affect the poor, workers and the environment; economic growth that is just and fair and improves the likelihood of such growth in the future.”) The nouveau riche class in Vietnam will not continue to expand – indefinitely – at its current pace. There are only so many people who can afford the kinds of luxury goods that have been consumed and ostentatiously displayed over the past few years. Sustainability will depend upon investments and changes made in education and health care, among other areas (e.g., environmental protection, food security, water hygiene, etc.).

Speaking of luxury goods, this gleaming white Bentley, for sale at a dealership in West Lake (Hanoi), will cost you a cool $800,000. Most cars are bought with cash.

Keep in mind that, in spite of the torrid economic growth rates of recent years, the per capita income is still only $1,200 (2010). The current rate of inflation of 12%, including basic necessities such as food and fuel, means that the majority of Vietnamese will suffer. (The cost of electricity is about to jump 18% and price hikes for most items are quite noticeable.) The rich and others with savings in US dollars and/or who receive their income in US dollars will naturally be insulated.